Major Asset Purchase

External financing is needed for a variety of different purposes, but there are some common reasons why businesses apply for funding. This can include loans for working capital, to buy machinery, to hire more staff, or even re-finance existing loans to reduce monthly costs. Business owners use external financing to avoid making personal investments. Small businesses may also turn to external financing because they do not have enough working capital. Financing allows business owners to retain their company's capital and use outside debt on investments to purchase necessary business assets.

Working Capital

Small businesses may need working capital at some point during their operational lifetime. Many businesses face low cash flow issues in the business environment. Business owners can use credit lines or other short-term loans and investments to improve their working capital. Credit lines allow small businesses to continue business operations in the absence of actual cash flow. Business owners can then repay short-term working capital loans as they collect cash from customer accounts or make additional sales.

Business Expansion

Small business expansion usually requires external financing. Business owners use external financing for business expansion to avoid spending too much capital on one aspect of their business. Expanded operations usually repay for the loan from additional business profits. Expansion financing is usually available for additional facilities and equipment. Business owners can use their current lender and investor relationships to secure additional business financing. Refinance options may also be available for business financing. This allows business owners to reduce interest rates from multiple loans into one single business loan.

Project Financing

Every project needs financing to implement and run it successfully. Project finance is sourcing funds to a long-term infrastructure project, or any other project, and using the cash flow generated from the project to payback the financing procured.